QUESTION 5. Santos Company currently manufactures one of its crucial parts at a cost of $3.40 per unit. This cost is based on a normal production rate of 50,000 units per year. Variable costs are S1.50 per unit, fixed costs related to making this part are $50,000 per year, and allocated fixed costs are $45,000 per year. Allocated fixed costs are unavoidable whether the company makes or buys the part. Santos is considering buying the part from a supplier for a quoted price of $2.70 per unit guaranteed for a three-year period. Should the company continue to manufacture the part, or should it-buy the part from the outside supplier? Support your answer with analyses.

QUESTION 5. Santos Company currently manufactures one of its crucial parts at a cost of $3.40 per unit. This cost is based on a normal production rate of 50,000 units per year. Variable costs are S1.50 per unit, fixed costs related to making this part are $50,000 per year, and allocated fixed costs are $45,000 per year. Allocated fixed costs are unavoidable whether the company makes or buys the part. Santos is considering buying the part from a supplier for a quoted price of $2.70 per unit guaranteed for a three-year period. Should the company continue to manufacture the part, or should it-buy the part from the outside supplier? Support your answer with analyses.

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter16: Cost-volume-profit Analysis

Section: Chapter Questions

Problem 40P

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